The Apple Store at 10: Past, Present, and Future

On May 19, 2001, the Apple Retail Store at Tysons Corner in Virginia opened its doors to the public and no small amount of criticism. From only two days later, the headline “Sorry, Steve: Here’s Why Apple Stores Won’t Work” is hilarious now, especially the prediction of it being “two years before they’re turning out the lights on a very painful and expensive mistake,” but at the time, it arguably made sense.

Past

In 2001, Apple Computer was struggling. The tech bust saw Mac sales plunging as much as 50 percent in one quarter in 2000. The company was fully engaged with launching OS X. If Apple didn’t have enough problems with its own business model, there was the cautionary tale of Gateway Country Stores to consider. In March, PC reseller Gateway closed 10 percent of its retail stores. If ever there was a time for Apple not to try retail, it was 2001. How fortunate for Apple and consumers the company did try it anyway.

The origin of the Apple Store begins with a full-sized mockup built in a warehouse. That idea came from Mickey Drexler, CEO of Gap, who had joined Apple’s board of directors in 1999. Not surprisingly, Apple and Gap stores share certain design similarities, but Apple Stores took retail minimalism to a new level, using just three materials. The materials were, as Apple SVP of Apple Retail Ron Johnson pointed out at the time, “glass, stainless steel, and wood.”

Much more importantly, the focus wasn’t on products to the exclusion of all else. Organizing products around categories was perceived as a mistake, or as Steve Jobs put it, “we were like, ‘Oh, God, we’re screwed!’ But because it was a mockup, Apple was able to redesign the store, emphasizing Mac usage and related interests, like digital photography. That focus on developing relationships with customers, especially when compared to competitors like Best Buy, is an underrated part of the Apple Store’s success, and what an astonishing success it has been.

Present

Ten years later, there are 324 Apple Stores: 233 in the U.S., and 91 international locations. In terms of foot traffic, Apple saw its billionth retail visitor last month, with 71 million in the last quarter alone, up 51 percent year over year. The increasing number of visitors can be ascribed not only to the popularity of Apple products, but location of stores. In the U.S., the goal has always been to have 85 percent of the population within driving distance of an Apple Store, which has often meaning paying a premium for retail space. Bu it’s been a strategy that’s paid off.

For fiscal year 2010, just under $10 billion in sales came from Apple Stores. Last quarter, revenue from Apple retail was $3.19 billion, up 90 percent year over year. That means Apple Stores accounted for 13 percent of the company’s revenue, an impressive figure that puts them far ahead of competitors like Best Buy when measured by metrics like sales per square foot.

Last quarter, Apple sold 797,000 Macs in Apple Stores, up 32 percent year over year. One of every five Macs sold now comes from an Apple Store, but even more important is who is buying them. Going back at least five years, about half of those buying Macs in Apple Stores are new to the platform. For the Mac, the Apple Store has contributed to the brand’s halo effect, boosting Macs sales by affinity just like the iPod, iPhone, and iPad. It’s also been instrumental to the iPad’s success, according to CEO Steve Jobs, and can’t be underestimated in terms of its contribution to how well the iPhone has done.

Looking at the numbers, it’s hard to argue the Apple Store has been anything but a huge success (and one made visually apparent in this infographic from last year), but perhaps not a flawless one. In 2004, Apple began experimenting with “mini-stores” in six locations. While it was rumored the concept would see expansion to as many as 50 locations, that never happened, likely for the obvious reason. The mini-stores are just too small to accommodate Apple Store traffic. The above mini-store in Palo Alto, Calif. is relocating to a much larger space in the same mall, and other mini-stores can be expected to follow.

Future

Besides the mini-store experiment, it’s hard to fault Apple’s execution of its retail strategy over the last ten years. But what about the future? Here are five predictions for the next ten years at the Apple Store.

Apple Store International. Apple expects to open around 40 stores in 2011, with only one in four of those located in the U.S. Expect that trend to accelerate, likely with a focus on China. Apple will soon be opening its fifth store in China, the same number as in Germany and just one less than France. A decade from now, China will quite possibly have more Apple Stores than any country except the U.S. and possibly the U.K., which currently has 29.

Personal Service. Last quarter, Apple set up more than one million purchased products for people in stores for free, a service competitors like Best Buy often charge for. While not all concierge services have succeeded (Personal Shopper being a noteworthy exception), expect more attempts to create and nurture relationships with customers over products and services.

No Software. With the launch of the Mac App Store, and now the rumored digital distribution of OS X Lion, it’s only a matter of time before boxed software disappears from the Apple Store. Signing up Microsoft for Mac Office and Adobe for its Creative Suite in the App Store will likely by the key to finally clearing that shelf space.

Desktop Deprecation. You don’t need to wait to 2021 to see this one coming true. Just visit any Apple Store today and count the desktops and laptops. It’s not hard to imagine the only desktop Macs on the sales floor being iMacs in just a few years.

Apple Television. Despite razor-thin margins, turning Apple’s tiny black box “hobby” into a flat screen with functionality and ease of use built has potential as another source of serious revenue, and there’s plenty of wall space in Apple Stores. However, first Apple must extend the App Store to the current Apple TV 2, and with an emphasis on gaming.

We’ll likely find out by Monday what the company’s own plans for Apple retail’s immediate future. Whatever those plans are, now and going forward, one thing is for certain: No one will be predicting failure.